Cement sector to take off as investment climate under CPEC improving

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While work is speedily underway on various projects under China-Pakistan Economic Corridor (CPEC) it is set to open up vistas of opportunities for local and foreign investors and due to work on infrastructure projects under CPEC, local cement industry and other allied industries has taken a boom.

While the CPEC is improving the overall investment climate in the country, improvement in the investment-friendly environment as a result of affordable energy, increased profitability, high capacity utilization rate, finance availability and reduced political and economic uncertainty will help attain the investment target for 2017.

There is a wide range of investment opportunities on offer. CPEC is an obvious candidate, with construction-related projects being in high demand. Industries such as cement, steel, paints etc, are benefitting from the spillover effects. Then, of course, there are returns to be made by firms, which introduce new technology and upgrades.

Sources in the All Pakistan Cement Manufacturers (APCMA) said the cement industry is going to invest $700 million to $1 billion for increasing capacity utilization in the next three years following increase in local demand as multiple public and private development projects are launched and the China-Pakistan Economic Corridor (CPEC) moves ahead.

While Cherat Cement, Attock Cement, DG Khan Cement and Lucky Cement have already announced their investment plans, while investment is being made. Fertilizer and other industries grew in an environment of relaxation and relief from the government. However, the cement sector did not get any relief even on liquefied natural gas (LNG) from the government.

The cement industry paid Rs40 billion in excise, sales, and income tax during the first six months of this financial year and the figure would touch Rs90 billion mark at the close of the fiscal.

The Gas Infrastructure Development Cess (GIDC) was imposed last year while industrial tax is now five percent, which was 4 percent two years ago. Besides, a one-time super tax was imposed and duty on coal import increased from 1 to 6 percent, the sources said.

Regarding cement smuggling from Iran, Pakistan Business Council’s report stated that out of the total inflows from Iran, only 25 percent import was properly documented while the rest was under invoiced or smuggled. It is said that 0.5-0.7m tons cement is being smuggled into Pakistan from Iran annually and the government is losing around Rs 10-20 billion in terms of taxes. The government needs to plug this hole as it is not only hurting the industry but causing revenue loss to the government.

The industry starts planning to add more capacity whenever utilization touches 80-85 percent mark so it can cater to increasing demand.

The Hakla-Yarik (D. I. Khan) section of Western Route of China Pakistan Economic Corridor (CPEC) is schedule to be completed in October 2018 with a cost of Rs129 billion. The 285 kilometer section is being constructed in five different packages and work on all packages is underway, according to the sources in Planning Ministry.

The sources said that 12-percent work of Package-I (Yarik-Rehmai Khel) having total length of 55 kilometer had been finished and this section would be completed in September 2018 with a cost of Rs13.3 billion. Similarly under Package-II, 72 km section from Rehmanikhel to Mianwali is to be constructed which is under passing land procurement and design process.

In addition 2 percent work on 52 kilometer section of package-III from Mianwali to Tarap has been completed, the sources said adding that this Rs20.6 billion section was started in October 2016 and it is scheduled to be completed by October 2018.

Similarly under Package-IV, 50 KM section from Tarap to Pindi Gheb is to be constructed with a cost of Rs21.4 billion and this section would also be completed in October next year. The contract agreement for Package-V has been signed and mobilization is under way for this 63 km long section from Pindi Gheb to Hakla, the sources added.

According to the sources, total distance of Western Route from Khunjrab to Gwadar is 2,494 km, which would pass through Burhan, D. I. Khan, Zhob, Quetta, Surab and Hoshab to Gwadar.

Economists said the China-Pakistan Economic Corridor (CPEC) is set to take Pakistan to new horizons on economic front. CPEC which is not just a corridor of connectivity to bring the places closer but a project of immense potential bound to change the destiny of the whole region. One of the most important phases of CPEC is its industrial phase which will start soon and under it, 36 Economic Zones will be set up in various areas of the country.

According to them, CPEC is geared to usher in new job opportunities, enhanced exports, more foreign exchange, and burgeoning trade activities and a number of other financial aspects of the country set to materialize during the upcoming industrial phase.

“Over the past few years, economic dynamism in the global economy has gradually been shifting—from advanced economies to emerging markets. Today, the emerging economies comprise of 85 percent of the world’s population, while contributing almost 60 percent of global GDP.

While the global recovery has been subdued, emerging economies have contributed more than 80 percent of global growth since the crisis. In the current scenario, Pakistan’s inclusion into the emerging markets is a tremendous achievement. It will create many new opportunities, despite the challenging environment,” they said.

On the other hand, local investors said the Chinese investors need to spell out how exactly Pakistan will benefit from the China-Pakistan Economic Corridor (CPEC).

“The entire world is engaged in an economic war. China also is boosting its economy. Their leaders are trying to ensure that their country is economically sound and they have succeeded in achieving their goals,” they said.

All Pakistan Cement Manufacturers Association (APCMA) in its budget proposals has urged the Federal Board of Revenue (FBR) to gradually reduce FED to zero as announced by the previous government in order to boost cement off-take.

APCMA Chairman Muhammad Ali Tabba said high taxation encouraged evasion and negatively impacted consumption. He recommended that FED on all services rendered in Sindh, KP or Punjab be abolished as it would eliminate double taxation and reduce cost of doing business.

Iranian cement of inferior quality was being sold at lower prices as compared to locally produced cement, he said, and urged the government to impose additional regulatory duty on imports of Iranian cement.

Moreover, recent increase in duty on import of coal from 1 to 6 percent had adversely hit the local manufacturers and had drastically increased cost of doing business, the APCMA chief said. He called for zero percent duty on coal imports as this would keep open the option of using coal as alternative source of energy.

The government had enacted the Gas Infrastructural Development Act of 2011 (2011 Act), whereby the government charged a cess to all gas consumers except those of the domestic sector, he added.

The capacity utilization for the seven-month period was 85 percent. An APCMA spokesman said domestic dispatches in January were 2.72m tons, up 0.78 percent year-on-year, while exports decreased 2.71 percent to 0.376m tons. Total cement dispatches in January were 3.087m tons, depicting yearly growth of 0.34 percent. He attributed slow growth in domestic dispatches in January to rain and snowfall.

Exports to Afghanistan decreased from 0.174m tons in January 2016 to 0.166m tons last month, showing a decline of 4.5 percent. Exports through the Wagah border and the southern coast of India soared 77 percent in January to 0.861m tons on an annual basis.

The spokesman said cement exports to Afghanistan declined 11 percent in the first seven months of 2016-17 while exports to India jumped to 79 percent. Exports by sea also declined 19.23 percent in July-Jan.

In order to meet the massive demand taking place in the country due to various government and CPEC projects coming up, the industry has gone in for an expansion in its capacity from 44 million tons to 60 million tons within two to three years. In this scenario it would be foolish to even think of importing cement.

It is good omen for the industry that its capacity utilization has increased due to domestic demand but the suggestion to remove import duty by some quarters based on current trend would be a shortsighted one. Abolishing the import duty will not only hurt the investments by existing manufacturers and new entrants but would also endanger the livelihood of many workers in the industry.

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